The adjusted basis of Jody's partnership interest was $50,000 immediately before Jody received a current distribution of $20,000 cash and property with an adjusted basis to the partnership of $40,000 and a fair market value of $35,000.

What amount of taxable gain must Jody report as a result of this distribution?

a. $0

b. $5,000

c. $10,000

d. $20,000

I chose letter c, and the correct answer was letter a. I chose c because of the following:

$50,000 basis

- $20,000 cash withdrawal

- $30,000 property basis (used $30k, not $40k to prevent a negative basis

____________________

= $0 basis

Now the additional $10,000 of property basis would be a taxable gain to Jody.

Can someone explain where I went wrong? Why is the answer letter a. $0 ?

removing assets from a partnership is not a taxable event...I think she would have to sell the land to report a gain or loss.

Your 30K appears to be the correct basis to report the gain amount when one is recognized.

When property is distributed in a partnership,no gain is recognized unless cash distributed is more than the partnership basis.In this case 20000 cash is distributed which is less than partnership basis that is 50,000. If 60,000 cash had been distributed then 10,000 gain would have been recognized.

Correct me if i m wrong.